Strong Chinese Demand Drives Japan's March Export Surge of 11.7%

Recovering demand from China combined with rising global prices has propelled Japan's exports to expand for seven consecutive months, though energy risks posed by the Middle East conflict are gradually permeating supply chains, casting a shadow over this strong momentum.

The Japanese Ministry of Finance announced on Wednesday that total exports in March grew 11.7% year-over-year, surpassing the median market forecast of 11% and accelerating significantly from the revised 4% growth rate in February.

Among these, exports to China jumped 17.7% year-over-year, becoming the month's primary growth engine, led by semiconductors, electronic components, and non-ferrous metals. Exports to the United States grew 3.4%, marking the first positive growth in four months.

Meanwhile, imports rose 10.9% year-over-year, exceeding the market expectation of 7.1%. Japan's March trade surplus narrowed to 667 billion yen (approximately $4.2 billion), falling short of the market forecast of 1.1 trillion yen.

Takeshi Minami, Chief Economist at Norinchukin Research Institute, stated that tensions in Iran had not yet negatively impacted oil imports in March, as many tankers were already en route to Japan when the conflict erupted. Crude oil may have continued arriving through mid-March. The full impact of the Middle East conflict is expected to appear in April data.

Recovering Chinese Demand Becomes Top Export Highlight

China was the most prominent positive factor in Japan's March export data. With the disruption from the Spring Festival holiday subsiding, Japan's exports to China jumped 17.7% year-over-year, with shipments of semiconductors, electronic components, and non-ferrous metals increasing significantly.

According to Bloomberg, China's post-holiday resumption of work and steady economic growth in the first quarter benefited multiple trading partners in the region. South Korea's export growth remained robust in early April, with shipments to China surging 70.9%; South Korean exports to China also climbed 64.2% in March, as strong global demand for AI chips overshadowed supply chain uncertainties triggered by the Middle East situation.

US Exports Turn Positive for First Time in Four Months; Auto Sector Under Pressure to Absorb Tariff Costs

Exports to the United States grew 3.4% year-over-year in March, ending a four-month streak of declines. This recovery is linked to the US-Japan trade agreement reached last year, which required Japan to commit to increased investment in the US in exchange for maintaining relatively low tariff rates on Japanese goods.

Notably, while Japan's automotive exports to the US fell 1.6% in value terms, they grew 2.3% in volume, indicating that Japanese automakers are actively compressing profits to absorb tariff costs and maintain market share. Battery shipments surged nearly 57%, becoming the category with the highest growth rate in exports to the US.

Middle East Conflict Impact Not Yet Reflected; April Data Could Be Critical

Although Iran's blockade of the Strait of Hormuz has disrupted energy transportation in the Gulf and impacted global supply chains, this effect has not been fully reflected in March data. Data shows that crude oil import volumes increased in volume terms but decreased by 7.3% in value terms.

Takeshi Minami pointed out that April data will be a critical window to observe the substantive impact of the Middle East conflict. Meanwhile, shortages of key petrochemical raw materials such as naphtha have forced dozens of companies to recently announce a halt in accepting new orders, despite government assurances of sufficient stockpiles. The Ministry of Economy, Trade and Industry also stated that it can ensure this year's crude oil supply by diversifying alternative supply sources outside the Strait of Hormuz and utilizing strategic petroleum reserves.

Weak Yen Exacerbates Inflation Pressures; Bank of Japan Faces Policy Dilemma

Rising energy prices and a persistently weak yen are jointly driving up inflation risks in Japan. Ministry of Finance data shows that the average exchange rate of the yen against the US dollar in March was 156.60, representing a 4.7% depreciation compared to the same period last year, further raising import costs.

The Bank of Japan is inclined to keep interest rates unchanged at its policy meeting on April 28. Analysts note that while rising inflation risks should push the central bank to raise rates, soaring energy costs simultaneously suppress economic growth, placing monetary policy direction in a dilemma. Takeshi Minami stated: "Exports remain strong. Although tensions in Iran have escalated, I believe the assessment that the global economy remains on a recovery track until around mid-March still largely holds."

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